Biotech Start-up Ovid Therapeutics misses mark with in-range IPO

Ovid Therapeutics (Pending: OVID) is a New York-based biopharmaceutical firm in the early stages of developing treatments to fight rare brain disorders. Founded in 2014, the relatively young company has no product in the market yet. However, most of Ovid’s products are promising and it is even more promising for the company that they’ll be entering the next phases of their testing after the IPO.

Ovid Therapeutics had expected to raise about $71.6 million in its IPO, $82.8 million if the underwriters exercised their overallotment option. On Friday, the company sold 5 million of its common stock at $15 apiece, at the lower end of its $15 to $17 price range. At the proposed midpoint, the company would have had a fully diluted market value of $405 million. The shares sold off earned Ovid Therapeutics $75 million in IPO proceeds with 750,000 type B stock outstanding for insiders. The lead managers for this deal were Citi, Cowen & Co., JMP Securities as well as William Blair.

While you couldn’t call the IPO disappointing, it still didn’t live up to its full revenue potential. Here are some of the reasons why Ovid Therapeutics could have flopped on NASDAQ.

The first risk that probably scared off investors was the typical problems associated with clinical stage biotech firms. Ovid Therapeutics has up to 2017 been getting cash from sale of its shares and from investors. The company has also made huge losses in the past, totaling up to $35.9 million by the end of the 2016 financial year. These losses with no steady income stream may have worried investors. Maybe they started asking themselves how they would get returns for their money should with Ovid’s performance on the decline.

Secondly, Ovid Therapeutics has had finances that raised eyebrows over the past few years.  And not in a good way. In addition to the significant losses that the firm has made, Ovid has also accumulated a sizeable debt, and it has no ready product to show for it. The debts are worrying on their own but coupled with increasingly high operational expenses, left little motivation for investors to take part in the issuance.

Even with those limitations, however, Ovid therapeutics managed to perform better than some companies which sold below their IPO ranges. The company’s innovative team may have something to do with that. CEO Dr. Jeremy Levin and CSO and founder Dr. Matthew During have been a driving force within the industry. With years of medical research and work experience in the commercial pharmaceutical experience between them, these two managed to assure investors. In fact, the underwriters of the deal alone expressed an interest in purchasing .25 of the common shares in the company’s IPO.

Similarly, the company’s main products have shown considerably good results in their clinical trial stages. The OV101, which is now moving into phase 2 trials for adults and phase 1 for adolescents, has shown substantial promise in its initial testing. The compound is used to treat Angelman and Fragile X syndromes, neurological disorders that result in insomnia, anxiety, erratic behavior and intellectual and cognitive disabilities.